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UPS was found to be the most competitive retailer, in a new study called, "New Dynamics That Create and Build Retailer Competitive Advantage." The study found that the top 10 most competitive retailers in 2007 have generated a return on invested capital (ROIC) three times higher than other retailers, since 2001. The average ROIC among the top 10 was 15.43 percent, versus an average of 5.03 percent among all retailers, according to the research conducted for the NRF Foundation by the Kanbay Research Institute (KRI).

In the retail industry, how companies differentiate themselves from their competitors is often the difference between sustained success and mediocrity, the authors point out. The past few years, a select group of retailers have been competing on a whole new level, the researchers found.

The UPS Store tops the list as the most competitive retailer, while Dollar Tree ranked second and Dollar General third. Walgreens, Kenneth Cole, Petco, Kohl's, Target, Men's Wearhouse and PetSmart round out the top 10.

"Investor Warren Buffet coined the term, 'moat,' to define how companies must create a barrier to entry, in order to protect their profits," says Gary A. Williams, President of KRI. "Our analysis of five years worth of consumer and financial data shows that to achieve an economic moat, companies build a consumer moat first."

In stark contrast to last year's findings, pricing power for retailers has increased substantially from 2.6 percent to 6.4 percent, going into 2007. As found with other sectors of the US economy studied by KRI, pricing power is a leading indicator that innovation is underway.

"Retailers cannot simply rely on everyday low prices to keep their customers coming back," says Kathy Mance, vice president of the NRF Foundation. "Companies will need to find creative ways to fuel their marketing and merchandising strategies and rethink how they view customer service in order to remain relevant."

The KRI analyzed data collected on the top performing companies in the U.S. over a five year period from 2001 to 2005. Firms that built competitive advantage had to meet two conditions throughout all five years: 1. A relatively stable or increasing market share, and 2. A high return on invested capital. KRI then scrutinized data collected from tens of thousands of consumer interviews about how well those same companies were meeting customer expectations.

KRI is an operating unit of Adjoined Consulting LLC, a subsidiary of Kanbay International, Inc. It conducts primary research on an original set of leading indicators that measure consumer demand across functional, emotional and economic factors. Through a patented research system, it builds comprehensive market models based on consumer desires. The system measures how well leading companies are building competitive advantage.

The NRF Foundation is the research and education arm of the National Retail Federation. This study was cosponsored by Abacus and Adjoined Consulting LLC, of which KRI is an operating unit.

Article ID: 90